Pricing Is a High-Wire Act: Analyst

Retailers will continue to walk a tightrope between driving sales and maintaining profit margins in 2009, according to one analyst interviewed by SN. There's a delicate balance that needs to be struck now between maintaining sales momentum and maintaining respectable gross margins, and it's hard to do both, said Gary Giblen, executive vice president of Goldsmith & Harris, New York, in a videotaped

NEW YORK — Retailers will continue to walk a tightrope between driving sales and maintaining profit margins in 2009, according to one analyst interviewed by SN.

“There's a delicate balance that needs to be struck now between maintaining sales momentum and maintaining respectable gross margins, and it's hard to do both,” said Gary Giblen, executive vice president of Goldsmith & Harris, New York, in a videotaped conversation about his outlook for the industry in 2009. The video will be available on supermarketnews.com [4] this week.

“So, you have had situations where companies like Winn-Dixie tried to goose sales, and they overshot it on promotions and blew their earnings sky-high,” he said. “Safeway had very high prices, and as a result they have had three successive disappointments on sales, and it is unusual for Safeway to miss targets like that. So they have had to, almost reluctantly, bring prices down.”

Even Kroger Co., which Giblen said had “cracked the code” ahead of other supermarket operators, faces the prospect of overpromoting once in a while to drive sales at the expense of margins.

“The challenge is striking a delicate balance,” he said. “Most chains are finding their way, but rather painfully.”

Food retailers have also had to adjust to what he called consumer demand for “everyday fair pricing.”

“You have to have good prices on the 1,000 or so visible SKUs that people tend to buy very frequently, and that has caused chains to make some real adjustments,” he said. “It's not enough to have a high-low offering, where you have generally high prices and an occasional hot special. The chains that have been most successful have been those that have realized this megatrend in everyday fair pricing.”

Giblen cited Ahold's Stop & Shop and Giant-Landover chains as examples of chains that have been able to pick up market share as a result of a shift away from a highly promotional strategy to a greater emphasis on low prices on everyday products.

Private label has also become a “cornerstone” of successful retailers' strategies, he noted.

“Private label really is the key to adequate profitability these days,” he said. “It gives the consumer something less expensive, while making a better penny profit for the supermarket.”

Giblen also lauded Wal-Mart for its timely refocus on sharp pricing after straying too far away from its core message in 2006 and 2007, and he noted the strong gains in food sales at alternative formats like warehouse clubs.